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        <li class="chapter " data-level="1.1" data-path="../">
            
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                    Introduction
            
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        <li class="chapter " data-level="1.2" data-path="../Lecture01/">
            
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                    Lecture 1: Introduction
            
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                    Lecture 2: Economics is a Social Science
            
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        <li class="chapter " data-level="1.3.1" data-path="Section01.html">
            
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                    Section1: Economics is a Science – Methodology of Science (1): Refutability
            
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        <li class="chapter active" data-level="1.3.2" data-path="Section02.html">
            
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                    Section 2: Economics is a Social Science
            
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        <li class="chapter " data-level="1.3.3" data-path="Section03.html">
            
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                    Section 3: Why Do We Need to Study Economics?
            
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        <li class="chapter " data-level="1.4" data-path="../Lecture03/">
            
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                    Lecture 3: Self-interest: the Postulate of Economics
            
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        <li class="chapter " data-level="1.4.1" data-path="../Lecture03/Section01.html">
            
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                    Section 1: Self-interest
            
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        <li class="chapter " data-level="1.4.2" data-path="../Lecture03/Section02.html">
            
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                    Section 2: The Postulate Needs not to be True
            
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        <li class="chapter " data-level="1.4.3" data-path="../Lecture03/Section03.html">
            
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                    Section 3: The Postulate of Self-interest Must be Followed
            
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        <li class="chapter " data-level="1.4.4" data-path="../Lecture03/Section04.html">
            
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                    Section 4: Rationality is not Equivalent to Correctness
            
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        <li class="chapter " data-level="1.4.5" data-path="../Lecture03/Section05.html">
            
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                    Section 5: The Consequences of Ignoring the Postulate of Self-interest
            
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        <li class="chapter " data-level="1.5" data-path="../Lecture04/">
            
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                    Lecture 4: Scarcity, Competition, Market, and Non-market
            
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                    Section 1: Scarcity
            
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        <li class="chapter " data-level="1.5.2" data-path="../Lecture04/Section02.html">
            
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                    Section 2: Competition, Competition Criterion, and Game rule
            
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        <li class="chapter " data-level="1.5.3" data-path="../Lecture04/Section03.html">
            
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                    Section 3: The Postulate of Self-interest Must be Followed
            
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        <li class="chapter " data-level="1.6" data-path="../Lecture05/">
            
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                    Lecture 5: Positive Economics and Normative Economics
            
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                    Section1: Positive economics
            
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        <li class="chapter " data-level="1.6.2" data-path="../Lecture05/Section02.html">
            
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                    Section 2: Normative economics
            
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        <li class="chapter " data-level="1.6.3" data-path="../Lecture05/Section03.html">
            
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                    Section3: Value Judgment
            
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        <li class="chapter " data-level="1.6.4" data-path="../Lecture05/Section04.html">
            
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                    Section 4: The Problems of Welfare Economics
            
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        <li class="chapter " data-level="1.7" data-path="../Lecture06/">
            
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                    Lecture 6: The History of Economic Thinking -- Microeconomics and Macroeconomics
            
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        <li class="chapter " data-level="1.7.1" data-path="../Lecture06/Section01.html">
            
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                    Section 1: From Classical Economics to Neoclassical Economics
            
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        <li class="chapter " data-level="1.7.2" data-path="../Lecture06/Section02.html">
            
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                    Section 2: The Rise and Decline of Keynesian Economics
            
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        <li class="chapter " data-level="1.7.3" data-path="../Lecture06/Section03.html">
            
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                    Section 3: Price Theory and Monetary Theory
            
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                    Section 4: The Causes of the Great Depression
            
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        <li class="chapter " data-level="1.7.5" data-path="../Lecture06/Section05.html">
            
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                    Section 5: More Truths about the Great Depression
            
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        <li class="chapter " data-level="1.8" data-path="../Lecture07/">
            
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                    Lecture 7: Equilibrium•Optimum•Margin
            
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                    Section 1: Equilibrium and Optimum
            
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        <li class="chapter " data-level="1.8.2" data-path="../Lecture07/Section02.html">
            
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                    Section 2: The Concept of Margin
            
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                    Section 3: The Economic Implication of Marginal Analysis
            
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                    Lecture 8: The Law of Demand
            
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                    Section 1: The Law of Demand and its Key Points
            
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        <li class="chapter " data-level="1.9.2" data-path="../Lecture08/Section02.html">
            
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                    Section 2: Ceteris Paribus
            
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        <li class="chapter " data-level="1.9.3" data-path="../Lecture08/Section03.html">
            
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                    Section 3: The Explanation of “Buying on the upswing, Selling on the downswing” in the Stock Market
            
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        <li class="chapter " data-level="1.9.4" data-path="../Lecture08/Section04.html">
            
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                    Section 4: The Selection of Other Factors –Methodology of Science (2): Occam’s Razor
            
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        <li class="chapter " data-level="1.9.5" data-path="../Lecture08/Section05.html">
            
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                    Section 5: The Role of the Law of Demand as An axiom
            
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        <li class="chapter " data-level="1.10" data-path="../Lecture09/">
            
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                    Lecture 9: Supply Curve, the Theory of Supply and Demand, the Price Intervention by Government
            
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        <li class="chapter " data-level="1.10.1" data-path="../Lecture09/Section01.html">
            
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                    Section 1: The Supply Curve
            
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        <li class="chapter " data-level="1.10.2" data-path="../Lecture09/Section02.html">
            
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                    Section 2: The Theory of Supply and Demand
            
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        <li class="chapter " data-level="1.10.3" data-path="../Lecture09/Section03.html">
            
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                    Section 3: The Traditional Analysis of Price Control and Its Problem
            
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        <li class="chapter " data-level="1.10.4" data-path="../Lecture09/Section04.html">
            
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                    Section 4: Price Control Causes Transaction Cost to Increase
            
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        <li class="chapter " data-level="1.10.5" data-path="../Lecture09/Section05.html">
            
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                    Section 5: Minimum Wage Laws Cause Unemployment
            
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        <li class="chapter " data-level="1.10.6" data-path="../Lecture09/Section06.html">
            
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                    Section 6: The Consequence of Agricultural Price Supports
            
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        <li class="chapter " data-level="1.11" data-path="../Lecture10/">
            
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                    Lecture 10: Consumer Theory
            
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        <li class="chapter " data-level="1.11.1" data-path="../Lecture10/Section01.html">
            
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                    Section 1: Two Axioms of Consumer Theory
            
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        <li class="chapter " data-level="1.11.2" data-path="../Lecture10/Section02.html">
            
                <a href="../Lecture10/Section02.html">
            
                    
                    Section 2: Use Value VS Utility — Methodology of Science (3): What is measure in science?
            
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        <li class="chapter " data-level="1.11.3" data-path="../Lecture10/Section03.html">
            
                <a href="../Lecture10/Section03.html">
            
                    
                    Section 3: Indifference Curve
            
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        <li class="chapter " data-level="1.11.4" data-path="../Lecture10/Section04.html">
            
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                    Section 4: The Optimum of the Consumer
            
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        <li class="chapter " data-level="1.11.5" data-path="../Lecture10/Section05.html">
            
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                    Section 5: The Changes of the Optimum of the Consumer
            
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        <li class="chapter " data-level="1.11.6" data-path="../Lecture10/Section06.html">
            
                <a href="../Lecture10/Section06.html">
            
                    
                    Section 6: Are there Giffen Goods?
            
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        <li class="chapter " data-level="1.11.7" data-path="../Lecture10/Section07.html">
            
                <a href="../Lecture10/Section07.html">
            
                    
                    Section 7: From Individual Demand to Market Demand
            
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        <li class="chapter " data-level="1.11.8" data-path="../Lecture10/Section08.html">
            
                <a href="../Lecture10/Section08.html">
            
                    
                    Section 8: Is There Theory of Elasticity?
            
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        <li class="chapter " data-level="1.12" data-path="../Lecture11/">
            
                <a href="../Lecture11/">
            
                    
                    Lecture 11: The Concept of Cost
            
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        <li class="chapter " data-level="1.12.1" data-path="../Lecture11/Section01.html">
            
                <a href="../Lecture11/Section01.html">
            
                    
                    Section 1: Opportunity Cost
            
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        <li class="chapter " data-level="1.12.2" data-path="../Lecture11/Section02.html">
            
                <a href="../Lecture11/Section02.html">
            
                    
                    Section 2: Historical Cost is not Cost
            
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        <li class="chapter " data-level="1.12.3" data-path="../Lecture11/Section03.html">
            
                <a href="../Lecture11/Section03.html">
            
                    
                    Section3: The Disturbance of Historical Cost
            
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        <li class="chapter " data-level="1.12.4" data-path="../Lecture11/Section04.html">
            
                <a href="../Lecture11/Section04.html">
            
                    
                    Section 4: The Laboratory in Economics
            
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        <li class="chapter " data-level="1.13" data-path="../Lecture12/">
            
                <a href="../Lecture12/">
            
                    
                    Lecture 12: The Concept of Rent
            
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        <li class="chapter " data-level="1.13.1" data-path="../Lecture12/Section01.html">
            
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                    Section 1: From Income and Cost to Rent
            
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        <li class="chapter " data-level="1.13.2" data-path="../Lecture12/Section02.html">
            
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                    Section 2: The Changeable Rent
            
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        <li class="chapter " data-level="1.13.3" data-path="../Lecture12/Section03.html">
            
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                    Section 3: The Concept of Rent from the First Perspective
            
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        <li class="chapter " data-level="1.13.4" data-path="../Lecture12/Section04.html">
            
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                    Section 4: The Concept of Rent from the Second Perspective
            
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        <li class="chapter " data-level="1.13.5" data-path="../Lecture12/Section05.html">
            
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                    Section 5: Profit
            
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        <li class="chapter " data-level="1.14" data-path="../Lecture13/">
            
                <a href="../Lecture13/">
            
                    
                    Lecture 13: Direct Cost and Overhead Cost
            
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        <li class="chapter " data-level="1.14.1" data-path="../Lecture13/Section01.html">
            
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                    Section 1: The Fallacy of Fixed Cost
            
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        <li class="chapter " data-level="1.14.2" data-path="../Lecture13/Section02.html">
            
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                    Section 2: Direct Cost and Overhead Cost
            
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        <li class="chapter " data-level="1.14.3" data-path="../Lecture13/Section03.html">
            
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                    Section 3: The Explanation of Producers’ Behaviors with Overhead Cost
            
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        <li class="chapter " data-level="1.14.4" data-path="../Lecture13/Section04.html">
            
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                    Section 4: The Principle of Rent Matching
            
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        <li class="chapter " data-level="1.14.5" data-path="../Lecture13/Section05.html">
            
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                    Section 5: The Form of Contract Affects Overhead Cost
            
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        <li class="chapter " data-level="1.15" data-path="../Lecture14/">
            
                <a href="../Lecture14/">
            
                    
                    Lecture 14: Transaction Cost
            
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        <li class="chapter " data-level="1.15.1" data-path="../Lecture14/Section01.html">
            
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                    Section 1: Transaction Cost is Indispensable
            
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        <li class="chapter " data-level="1.15.2" data-path="../Lecture14/Section02.html">
            
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                    Section 2: The History of Transaction Cost
            
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        <li class="chapter " data-level="1.15.3" data-path="../Lecture14/Section03.html">
            
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                    Section 3: From the Special Transaction Cost to the General Transaction Cost — Methodology of Science (4): Ad Hoc Theory
            
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        <li class="chapter " data-level="1.15.4" data-path="../Lecture14/Section04.html">
            
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                    Section 4: The Perspective of Contract
            
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        <li class="chapter " data-level="1.16" data-path="../Lecture15/">
            
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                    Lecture 15: Market Structure – Price-Taking
            
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        <li class="chapter " data-level="1.16.1" data-path="../Lecture15/Section01.html">
            
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                    Section 1: The Definition of Price-Taking
            
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        <li class="chapter " data-level="1.16.2" data-path="../Lecture15/Section02.html">
            
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                    Section 2: The Optimum of Producers
            
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        <li class="chapter " data-level="1.16.3" data-path="../Lecture15/Section03.html">
            
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                    Section 3: The Law of Diminishing Marginal Product
            
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        <li class="chapter " data-level="1.16.4" data-path="../Lecture15/Section04.html">
            
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                    Section 4: Average Cost
            
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        <li class="chapter " data-level="1.16.5" data-path="../Lecture15/Section05.html">
            
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                    Section 5: The Theory of Supply and Demand with Production
            
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        <li class="chapter " data-level="1.16.6" data-path="../Lecture15/Section06.html">
            
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                    Section 6: Consumer Surplus and Producer Surplus
            
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        <li class="chapter " data-level="1.17" data-path="../Lecture16/">
            
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                    Lecture 16: Market Structure – Price-Searching
            
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        <li class="chapter " data-level="1.17.1" data-path="../Lecture16/Section01.html">
            
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                    Section 1: The Definition of Price-Searching
            
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        <li class="chapter " data-level="1.17.2" data-path="../Lecture16/Section02.html">
            
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                    Section 2: The Cause of Monopoly (I): Innate Talent
            
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        <li class="chapter " data-level="1.17.3" data-path="../Lecture16/Section03.html">
            
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                    Section 3: The Cause of Monopoly (II): Acquired Construction
            
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        <li class="chapter " data-level="1.17.4" data-path="../Lecture16/Section04.html">
            
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                    Section 4: The Ambiguous Antitrust Law
            
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        <li class="chapter " data-level="1.17.5" data-path="../Lecture16/Section05.html">
            
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                    Section 5: Administrative Monopoly
            
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        <li class="chapter " data-level="1.17.6" data-path="../Lecture16/Section06.html">
            
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                    Section 6: The Deadweight Loss of Monopoly
            
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        <li class="chapter " data-level="1.17.7" data-path="../Lecture16/Section07.html">
            
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                    Section 7: Turning Consumer Surplus to Producer Surplus
            
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        <li class="chapter " data-level="1.17.8" data-path="../Lecture16/Section08.html">
            
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                    Section 8: The Other Price Arrangements to Eliminate Deadweight Loss
            
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        <li class="chapter " data-level="1.17.9" data-path="../Lecture16/Section09.html">
            
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                    Section 9: Quality Competition
            
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        <li class="chapter " data-level="1.17.10" data-path="../Lecture16/Section10.html">
            
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                    Section 10: Cartels
            
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        <li class="chapter " data-level="1.17.11" data-path="../Lecture16/Section11.html">
            
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                    Section 11: The Fallacy of Game Theory
            
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        <li class="chapter " data-level="1.18" data-path="../Lecture17/">
            
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                    Lecture 17: Information Cost
            
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                    Section 1: Information Cost in Society
            
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        <li class="chapter " data-level="1.18.2" data-path="../Lecture17/Section02.html">
            
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                    Section 2: The Behaviors Reducing Information Cost
            
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        <li class="chapter " data-level="1.18.3" data-path="../Lecture17/Section03.html">
            
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                    Section 3: The Behaviors Increasing Information Cost
            
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        <li class="chapter " data-level="1.18.4" data-path="../Lecture17/Section04.html">
            
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                    Section 4: The Price-Searching Caused by Information Cost
            
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                    Section 5: Replacing Risk with Information Cost
            
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        <li class="chapter " data-level="1.18.6" data-path="../Lecture17/Section06.html">
            
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                    Section 6: Insurance
            
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        <li class="chapter " data-level="1.18.7" data-path="../Lecture17/Section07.html">
            
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                    Section 7: Adverse Selection and Moral Hazard
            
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        <li class="chapter " data-level="1.18.8" data-path="../Lecture17/Section08.html">
            
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                    Section 8: The Extremely Low Rate of Return of Social Pension Insurance
            
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        <li class="chapter " data-level="1.18.9" data-path="../Lecture17/Section09.html">
            
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                    Section 9: SOP is An Irrelevant Answer
            
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        <li class="chapter " data-level="1.19" data-path="../Lecture18/">
            
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                    Lecture 18: The Theory of Interest
            
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                    Section 1: The Causes of Interest
            
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        <li class="chapter " data-level="1.19.2" data-path="../Lecture18/Section02.html">
            
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                    Section 2: Interest Rate
            
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        <li class="chapter " data-level="1.19.3" data-path="../Lecture18/Section03.html">
            
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                    Section 3: The Discount Formula
            
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                    Section 4: From Asset to Capital, Annuity, Investment and Saving
            
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                    Section 5: The Separation Theorem
            
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        <li class="chapter " data-level="1.20" data-path="../Lecture19/">
            
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                    Lecture 19: Monetary Theory
            
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                    Section 1: The Functions of Money
            
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        <li class="chapter " data-level="1.20.2" data-path="../Lecture19/Section02.html">
            
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                    Section 2: The Value of Good VS the Value of Money
            
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        <li class="chapter " data-level="1.20.3" data-path="../Lecture19/Section03.html">
            
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                    Section 3: The Cause of Inflation
            
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                    Section 4: The History of Money
            
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                    Section 5: The Harm of Inflation and Deflation
            
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                    Section 6: The History of Paper Money
            
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                    Section 7: The Truth of Bretton Woods System
            
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                    Section 8: The Quantity Theory of Money
            
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                    Section 9: Money Multiplier
            
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                    Section 10: The Monetary Policy Tools of Central Bank
            
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                    Section 11: The Difficulty in the Target of Monetary Policy
            
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                    Section 12: The Formation of Zhu’s Monetary System
            
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                    Section 13: From the Monetary Policy Regulating Economy to the Monetary System Stabilizing Money Value
            
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                    Section 14: The Monetary System Pegging Money to the Price Index of a Basket of Tradable Goods
            
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        <li class="chapter " data-level="1.21" data-path="../Lecture20/">
            
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                    Lecture 20: Income Distribution, Wage Contract, Unemployment
            
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                    Section 1: Income Distribution: Marginal Productivity Theory
            
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                    Section 2: Wage Contract
            
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                    Section 3: The Theory of Rent-encroaching
            
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                    Section 4: The Causes of Unemployment
            
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                    Section 5: Natural Rate of Unemployment
            
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                    Lecture 21: The Critique on Keynes’s Theory of National Income Determination
            
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                    Section 1: The Statistical Index of National Income: GDP
            
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                    Section 2: Is Saving Different From Investment?
            
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                    Section 3: The Problem in the Theory of Multiplier
            
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                    Section 4: The Problem in Keynes’s Consumption Function
            
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                    Section 5: The Pandora’s Box of Fiscal Deficit
            
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                    Section 6: The Crowding-out Effect of Government Expenditure
            
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                    Lecture 22: Business Cycle and Economic Growth
            
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                    Section 1: Financial Crisis cannot Destroy Real Wealth
            
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                    Lecture 23: Coase Theorem
            
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                    Section 1: The First Version of Coase Theorem
            
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                    Section 2: The Second Version of Coase Theorem
            
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                    Section 3: The Third Version of Coase Theorem
            
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                    Lecture 24: Externality
            
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                    Section 1: The Cause of Externality
            
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                    Lecture 25: Rent Dissipation
            
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                    Section 1: The Concept of Rent Dissipation
            
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                    Section 4: Rent Dissipation as a Mode of Thinking
            
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                    Lecture 26 Political Economics
            
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                    Section 1: The Nature of Nation from the Perspective of Economics
            
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                    Section 2: The Definition of Dictatorship and Democracy
            
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                    Section 4: Arrow’s Impossibility Theorem and the Median-Voter Theorem
            
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                    Section 5: Democratic Voting Infringes on PPRs
            
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                    Section 6: The Difficulties of Dictatorship
            
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                                <h1 id="section-2-economics-is-a-social-science">Section 2: Economics is a Social Science</h1>
<p>Economics is a science, but it is a social science different from natural science such as Physics. What is the difference? Physics studies matter, while economics studies human, which is the fundamental difference.</p>
<p>Why is it a fundamental difference? Because economists are human too! In other words, economists themselves are also the study objects. Chemistry is a natural science, of which the study object is a molecule, while the studiers are human. What happens if molecules study themselves? Since economists as studiers and their study objects are all human, it causes much trouble. </p>
<p>Firstly, human has emotion, while science requires objective analysis where subjective emotion should be ruled out. It is easy for natural scientists with the matter as a study object to do so, while rather tricky for social scientists who themselves are also human to rule out their emotions. Economic issues often arouse social disputes with anger. Anger is precisely a kind of emotion which should be ruled out in the discussion of economic issues since economics is a science. Anger can never be used to discuss issues of physics; however, once issues are economical, it is difficult to rule out the emotion of anger! </p>
<p>Secondly, the postulate of economics is the self-interest of human. Economists are, of course, self-interested too, which cause a severe problem: some economists do not objectively analyze issues with economic theories, but distort their analysis intentionally or unintentionally and make the conclusions beneficial to them. For example, there are many debates on the issue of property prices in China. Different economists have very different opinions. No wonder the public doubt if economics is a science.</p>
<p>There is a joke that ten economists would have eleven opinions on the same economic issue. There are three reasons for this weird phenomenon:</p>
<p>(1) As mentioned in the previous lecture, there are still so many mistakes in economics nowadays. Only wrong conclusions can be made by analysis with wrong theories.</p>
<p>(2) Economics is rather simple but very difficult to apply. So there is a great distinction between a master and a lame duck. A skillful woodcarver can make a masterpiece out of wood while a clumsy one cannot make anything. Similarly, the second-rate or unqualified economists can only make the wrong conclusion even with correct economic theories.</p>
<p>(3) It may be the most key reason. As mentioned above, the self-interested economists distort their analysis to make the conclusions most beneficial to them. It is neither because the theories are wrong, nor because they do not understand how to use the theories correctly, but because they need these conclusions beneficial to them.</p>
<p>Natural science such as physics has the advantage that it can avoid the distortions by self-interest and emotion of human. However, this kind of distortion did occur in the history of the developments of natural science. It may be not well-known that Newton was not a good guy. Historians believe that the fight for the invention of calculus between Newton and Leibniz had postponed the development of mathematics in the UK by at least a century. Besides, he was so narrow-minded that he severely squeezed Hooker, another famous physicist, out.</p>
<p>There is a real story in &#x201C;The Passions of the Mind&#x201D;, a biography of Freud. When Freud began his career as a psychiatrist, in medicine, there was a wrong thought and people believed that only females would suffer from hysteria because they thought psychosis was only for those with weak willing. Due to this discrimination for female, psychiatrists at that time, never thought about the possibility of male patients. </p>
<p>However, Freud found some cases of male patients of hysteria in the clinic. Napoleon was a patient of hysteria, which showed that hysteria had nothing to do with a weak will and that even males can get hysteria. Nevertheless, at that time, the prejudice for female was so strong that such ridiculous thought was prevalent even though medicine is natural science with the human body instead of a human being as its study object.</p>
<p>Freud published his finding in an academic paper which caused criticisms and attack on him overwhelmingly. He did not take them seriously but was surprised and upset by the criticism of a massively respected elder in medicine whom he adored. He felt puzzled why the elder who is more experienced than him refused to admit that there were male patients of hysteria. </p>
<p>Due to the intense criticisms, Freud lost his reputation and even job. Many years later, when the respected elder was dying, he called Freud to his bed and said: &#x201C;In fact, no one in the world knows more clearly than I that you are right, because I am a male patient of hysteria myself.&#x201D;
The respected elder was not ignorant. Precisely because he knew undoubtedly, he could not accept the truth. If one refuses to accept the truth because of ignorance, he cannot be educated. Nevertheless, if the truth is adverse to his benefits, it is in vain to try to persuade him by reasoning. There is a Chinese saying that a scholar cannot reason with a soldier. That is because the soldier does not intend to reason with him. It is the same for those who want to hide their selfish desires by disguising to reason.</p>
<p>Thus natural science with the matter as study object has the same problem as economics. However, natural science has the advantage that it can do controllable experiments in labs to test theories. Different persons have different interests, so it is usually not easy for natural science is manipulated by a few persons. While the lab of economics is the uncontrollable real world, so it is much easier for few economists to take advantage of the public&#x2019;s ignorance and the emotion to distort the economic analysis and make conclusions beneficial to them at the expense of the reputation of all economists as a whole.</p>
<p>The public is confused to see different economists have such divergent opinions on the same issue hence doubt if economics is a science like physics. It is some economists instead of economics that should carry the blames.</p>
<blockquote>
<h2 id="reading-material-the-ecologist-the-economist-and-the-statistician1">READING MATERIAL: THE ECOLOGIST, THE ECONOMIST, AND THE STATISTICIAN<sup><a href="#fn_1" id="reffn_1">1</a></sup></h2>
<p>In 1990 the ecologist and popular author Paul Ehrlich sent a check for $576.07 to the economist Julian L. Simon. It was a payoff on a bet made 10 years previously. Ehrlich, though not an economist, had made startling economic predictions in his 1968 best-seller The Population Bomb. Take, for example, his opening sentences: &#x201C;The battle to feed all of humanity is over. In the 1970s, hundreds of millions of people are going to starve to death.&#x201D;</p>
<p>Ehrlich&#x2019;s predictions utterly failed. Despite an &#x201C;oil crisis&#x201D; in mid-decade and again toward the end, overall the 1970s were a decade of remarkable economic growth. Yet the author continued to be highly acclaimed. In books, speeches, and articles that received worldwide attention, he prophesied that accessible supplies of many key minerals would be nearly depleted by 1985.
Meanwhile the economist Julian L. Simon had been predicting just the reverse for the1970s and1980s: &#x201C;continuing improvements in human well-being, and lower prices for raw materials. Simon challenged Ehrlich to back his contrary forecast with hard cash, and Ehrlich accepted the challenge. The result was a 1980 bet about whether the prices of five important metals &#x2013; chrome, copper, nickel, tin, and tungsten &#x2013; would, after allowing for inflation, rise or fall by 1990. The economist let the ecologist choose specific commodities&quot;. Once again, economist Simon was proved right and Ehrlich wrong. The 1980s were also a decade of prosperity, and raw materials prices generally fell. The ecologist had to pay off on the bet.</p>
<p>Ehrlich&#x2019;s analytic error was to look only at the demand side, and specifically at a growing world population (more mouths to feed). Julian Simon, with his better economic understanding, also considered the supply side. More people mean more mouths, but also more hands and brains. Simon also took account of other favorable economic trends such as greater liberalization of national economies and increased international trade.</p>
<p>So the predictions of economic analysis were vindicated. Nevertheless, Paul Ehrlich continued to publish highly popular books forecasting, as mistakenly as before, environmental doom in the near future. Just as regularly, up to his death in 1998 Julian Simon was providing sound analysis and well-validated economic forecasts, culminating in his volume The Ultimate Resource (2nd ed., Princeton University Press, 1998). But none of his books was best-sellers.</p>
<p>What was going on here? An economic interpretation might be that these two authors were supplying different commodities. Julian Simon was supplying correct economic analysis. Paul Ehrlich was and is in a different business, somewhat comparable to horror-story writers such as Stephen King. Evidently, at least when it comes to selling books, the demand for horror stories far exceeds the demand for sound economic analysis. [ For a detailed history of the Ehrlich-Simon wager see John Tierney, &#x201C;Betting the Planet,&#x201D; New York Times Magazine, December 2, 1990.]
A later exhaustive and careful study by the Danish statistician Bjorn Lomborg (The Skeptical Environmentalist, Cambridge University Press, 2001) has updated Simon&#x2019;s results. Initially intending to refute Simon&#x2019;s analysis, Lomborg found his research instead of confirming it. Despite the rising world population, per capita incomes have maintained their upward trend and real prices of essential resources have continued to fall.</p>
<p>As a rather strange sidelight, upon publishing these results, Lomborg became the target of personal attacks that reached an extraordinary level of intensity. At one of his public presentations, a cream pie was dumped on his face and clothing. He was even accused of &#x201C;intellectual dishonesty&#x201D; by a scientific body with official standing in Denmark. Ultimately, all the charges were conclusively refuted, and the improperly motivated proceeding against Lomborg was dismissed. (Which does not necessarily mean, of course, that all of Lomborg&#x2019;s estimates and forecasts will ultimately prove to be correct.)</p>
<p>One possible lesson: sound economic analysis can sometimes be riskier than one might think<sup><a href="#fn_2" id="reffn_2">2</a></sup></p>
</blockquote>
<p>The material above shows that Ehrlich was not an economist, and facts had refuted his analysis, but his books were still more popular than those by Simon as an economist. Why? Because the demand for Ehrlich&#x2019;s book is the same as for horror fictions instead of correct economic analysis. Ehrlich kept writing books full of mistakes, not to provide correct economic analysis, but to attract readers as an alarmist. There are similar cases in China too. Who should carry the blames, economics, or some so-called economists?</p>
<p>However, it is necessary to point out that when people enjoy themselves by reading horror fictions, they know that they are just fictions, it will not feel panic. Who would believe that the film of &#x201C;2012&#x201D; would become real, and be so horrified to sell out their properties or even commit suicide? But when some economists, with the name of a scientist, are engaged in faking horror fictions, the consequences will be severe. The public thought what they provide were correct economic analysis, but they only make alarmist remarks to earn money. If the government does believe them and implement economic policies according to the analysis of such economists, the consequence will be disastrous.</p>
<hr>
<blockquote id="fn_1">
<sup>1</sup>. This reading material is an excerpt from &#x201C;Price Theory and Its Application&#x201D;, the seventh edition, Jack Hirshleifer, Amihai Glazer, David Hirshleifer, Cambridge University Press, 2005, P6-7. This annotation applies to the following materials which are also from this book, so will not be repeated.<a href="#reffn_1" title="Jump back to footnote [1] in the text."> &#x21A9;</a>
</blockquote>
<blockquote id="fn_2">
<sup>2</sup>. A summary of the Lomborg controversy is provided in Jim Giles, &#x201C;The Man They Love to Hate,&#x201D; Nature, v. 423, May 15, 2003.<a href="#reffn_2" title="Jump back to footnote [2] in the text."> &#x21A9;</a>
</blockquote>

                                
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